Question 1

Harriet Ltd.has a likely loss that can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.Under ASPE, the loss accrual should be
A)zero.
B)the maximum of the range.
C)the mean of the range.
D)the minimum of the range.

Accepted Answer

Under ASPE, when a loss can only be estimated within a range and no amount within that range is a better estimate than any other, the minimum amount in the range should be accrued.

Question 2

The denominator of the days payable outstanding ratio can be
A)average daily sales.
B)average trade accounts payable.
C)average daily cost of goods sold.
D)average trade accounts receivable.

Accepted Answer

The answer of The denominator of the days payable outstanding...

Question 3

According to the Exposure Draft of Proposed Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets,
A)only conditional obligations are recorded.
B)liabilities must have measurement certainty.
C)the term "contingent liabilities" is eliminated.
D)a conditional obligation related to an unconditional obligation is not recognized.

Accepted Answer

The Exposure Draft proposed to eliminate the term "contingent liabilities" to clarify the distinction between liabilities and contingent liabilities.

Question 4

Under ASPE, a contingent liability is recognized if
A)it is certain that funds are available to settle the contingency.
B)an asset may have been impaired.
C)the amount of the loss can be reasonably estimated and it is likely that an asset has been impaired or a liability incurred as of the financial statement date.
D)it is likely that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

Accepted Answer

Under ASPE, a contingent liability is recognized if the amount of the loss can be reasonably estimated and it is likely that an asset has been impaired or a liability incurred as of the financial statement date. This means that there is a probable obligation or loss that can be reasonably estimated, and the obligation or loss is more likely than not to occur. The availability of funds to settle the contingency is not a criterion for recognizing a contingent liability. The impairment of an asset may trigger the recognition of a liability, but it is not sufficient on its own to recognize a contingent liability. Similarly, the likelihood of an asset impairment or a liability being incurred is not sufficient on its own to recognize a contingent liability if the amount of the loss cannot be reasonably estimated.

Question 5

Using the revenue approach of accounting for product guarantees and warranty obligations
A)the liability is measured at the estimated cost of meeting the obligation.
B)there is no effect on future income.
C)the liability is measured at the value of the services to be provided.
D)the liability is measured at the value of the services to be provided, but there is no effect on future income.

Accepted Answer

The answer of Using the revenue approach of accounting for...

Question 6

At the time of recognition of an asset retirement obligation, the present value should be
A)recorded as a separate long-term asset and as an asset retirement obligation.
B)expensed and recorded as an asset retirement obligation.
C)expensed to "Asset Retirement Expense" in the period actually paid.
D)added to the related asset cost and recorded as an asset retirement obligation.

Accepted Answer

According to accounting standards, when recognizing an asset retirement obligation (ARO), the present value of the estimated retirement costs is added to the carrying amount of the related long-term asset. This amount is then depreciated over the asset's useful life. Additionally, a liability for the same amount is recognized, reflecting the present value of the obligation to retire the asset in the future.

Question 7

Which of the following is generally NOT used as a basis for calculating bonuses or profit-sharing amounts?
A)a percentage of the employees' regular pay rates
B)the company's pre-tax income
C)productivity increases
D)gross sales

Accepted Answer

Gross sales are generally not used as a basis for calculating bonuses or profit-sharing amounts, as they do not take into account factors such as expenses and profit margins. Other factors such as productivity increases, company profits, and the employee's regular pay rate are more commonly used as a basis for calculating bonuses or profit-sharing amounts.

Question 8

According to the IASB current proposed definition, which of the following is NOT an essential characteristic of a liability?
A)It exists in the present time.
B)There is certainty about the amount of future outflows.
C)The obligation is enforceable on the obligor entity.
D)It represents an economic burden or obligation.

Accepted Answer

The IASB's proposed definition of a liability includes that it exists in the present time, represents an economic burden, and is enforceable on the obligor entity. However, there is not necessarily certainty about the amount of future outflows associated with a liability. In fact, the amount of the outflows may be uncertain and require estimation or judgement by the entity.

Question 9

On December 1, 2017, Corby Ltd.borrowed $270,000 from their bank, by signing a four-month, 7% interest-bearing note.Assuming Corby has a December 31 year end and does NOT use reversing entries, the journal entry to record payment of this note on April 1, 2018 will include a
A)credit to Note Payable of $270,000.
B)debit to Interest Expense of $6,300.
C)debit to Interest Payable of $4,725.
D)debit to Interest Payable of $1,575.

Accepted Answer

The answer of On December 1, 2017, Corby Ltd.borrowed $270,000...

Question 10

Which of the following may NOT be accrued as a contingent liability?
A)threat of expropriation of assets
B)pending or threatened litigation
C)guarantees of indebtedness of other
D)potential income tax refunds

Accepted Answer

Potential income tax refunds are not a contingent liability because they represent a potential future inflow of cash, rather than a liability that has already been incurred. Contingent liabilities are potential obligations that may or may not arise in the future, depending on the outcome of uncertain events or circumstances. Threat of expropriation, pending or threatened litigation, and guarantees of indebtedness of others are all examples of contingent liabilities because they represent potential obligations that may arise in the future.

Question 11

On November 1, 2017, Best Corp.signed a three-month, zero-interest-bearing note for the purchase of $80,000 of inventory.The maturity value of the note was $81,200, based on the bank's discount rate of 6%.The adjusting entry prepared on December 31, 2017 in connection with this note will include a
A)debit to Note Payable for $800.
B)credit to Note Payable for $800.
C)debit to Interest Expense for $1,200.
D)credit to Interest Expense for $800.

Accepted Answer

The answer of On November 1, 2017, Best Corp.signed a...

Question 12

The current (commonly used)accounting treatment for premiums and coupons requires that the costs should
A)be recorded at the maximum possible redemption cost in the year of the related sales.
B)be recorded at the total estimated redemption cost in the year of the related sales.
C)be recorded in the year(s)that the redemption is expected to occur.
D)not be recorded at all.

Accepted Answer

The current accounting treatment for premiums and coupons requires that the costs should be recorded at the total estimated redemption cost in the year of the related sales. This means that the company should estimate the total cost of the premiums and coupons that will be redeemed and record that amount as a liability in the year they are sold. This ensures that the company's financial statements accurately reflect the cost of the premium or coupon promotion and the impact on profitability.

Question 13

Which of the following commitments would NOT require disclosure in the financial statement notes?
A)major property, plant and equipment expenditures
B)payments under non-cancellable operating leases
C)large purchases of materials in the normal course of business
D)commitments involving significant risk

Accepted Answer

Large purchases of materials in the normal course of business do not qualify as commitments that require disclosure in the financial statement notes, whereas the other options do. Major property, plant and equipment expenditures, payments under non-cancellable operating leases, and commitments involving significant risk are all potentially significant commitments that should be disclosed in the notes to the financial statements.

Question 14

Which of the following statements is INCORRECT concerning warranties?
A)Using the expense approach, the warranty is provided with the product or service with no additional fee.
B)Where warranty costs are immaterial or when the warranty period is quite short, the warranty costs may be accounted for using the cash basis.
C)Using the revenue approach, the warranty is a separate deliverable from the related product or service.
D)The revenue approach must be used for income tax purposes.

Accepted Answer

The revenue approach is not required to be used for income tax purposes. The choice of accounting method for warranties for income tax purposes is generally left up to the taxpayer, as long as it is consistent with their overall accounting method.

Question 15

Under IFRS, a provision is
A)a special fund set aside to pay long-term debt.
B)unearned revenue.
C)a liability of uncertain timing or amount.
D)an allowance for future dividends to be paid.

Accepted Answer

A provision is a liability of uncertain timing or amount that is recognized when an entity has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. It is not a fund set aside for debt repayment, unearned revenue, or an allowance for future dividends.

Question 16

Under current IFRS requirements, a provision is recognized if
A)the amount of the loss can be reliably measured and it is probable that an asset has been impaired or a liability incurred as of the financial statement date.
B)the amount of the loss cannot be measured reliably but it is probable that an asset has been impaired or a liability incurred as of the financial statement date.
C)it relates to a lawsuit commenced after the statement of financial position date, the outcome of which can be reliably measured.
D)it relates to an asset recognized as impaired after the statement of financial position date.

Accepted Answer

According to IFRS, a provision is recognized only if the amount of the loss can be reliably measured and it is probable that an asset has been impaired or a liability incurred as of the financial statement date. This means that there should be sufficient evidence at the reporting date to conclude that a loss has been incurred and that the amount of the loss can be estimated reliably. If these conditions are not met, no provision should be recognized.

Question 17

The numerator of the acid-test ratio consists of
A)total current assets.
B)cash and marketable securities.
C)cash and net receivables.
D)cash, marketable securities, and net receivables.

Accepted Answer

The answer of The numerator of the acid-test ratio consists...

Question 18

Which of the following statements is INCORRECT regarding the recording of the related increase or accretion in the carrying amount of an asset retirement obligation (ARO)?
A)Under ASPE, it is recognized as interest expense.
B)Under ASPE, it is recognized as an operating expense (but not as interest expense).
C)Under IFRS, it is recognized as a borrowing cost.
D)The amount should be calculated using the same discount (interest rate)as was used to calculate the initial present value of the ARO.

Accepted Answer

The answer of Which of the following statements is INCORRECT...

Question 19

What are the current International Financial Reporting Standards regarding customer loyalty programs (such as frequent flyer points)?
A)They are recognized only in the financial statement notes.
B)They are recognized only when customers redeem their points.
C)They are not explicitly addressed.
D)The current proceeds are to be split between the original transaction and the award credits (as unearned revenue).

Accepted Answer

Under the International Financial Reporting Standards (IFRS), customer loyalty programs are addressed by IFRIC 13, which requires that the fair value of the consideration received or receivable be allocated between the awarded credits and the other components of the sale. This means that the proceeds from the transaction that includes the award credits (such as frequent flyer points) are to be split between the initial sale and the award credits, with the portion allocated to the award credits recognized as unearned revenue (deferred revenue) until the obligation is fulfilled.

Question 20

Under ASPE, an asset retirement obligation should be recognized when
A)an asset is impaired and is available for sale.
B)operation of an asset has resulted in an additional obligation such as the cost of cleaning up an oil spill.
C)there is a legal obligation to restore the site of the asset at the end of its useful life.
D)the company has an obligation to purchase a long-lived asset.

Accepted Answer

An asset retirement obligation should be recognized when there is a legal obligation to restore the site of the asset at the end of its useful life. This means that the company is required to incur costs to retire an asset and restore the site where the asset was located. This often applies to industries such as mining and oil and gas, where land needs to be restored to its original state after the asset has been used.

Quiz 13: Non-Financial Andcurrent Liabilities

Harriet Ltd.has a likely loss that can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.Under ASPE, the loss accrual should be

The denominator of the days payable outstanding ratio can be

According to the Exposure Draft of Proposed Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets,

Under ASPE, a contingent liability is recognized if

Using the revenue approach of accounting for product guarantees and warranty obligations

At the time of recognition of an asset retirement obligation, the present value should be

Which of the following is generally NOT used as a basis for calculating bonuses or profit-sharing amounts?

According to the IASB current proposed definition, which of the following is NOT an essential characteristic of a liability?

On December 1, 2017, Corby Ltd.borrowed $270,000 from their bank, by signing a four-month, 7% interest-bearing note.Assuming Corby has a December 31 year end and does NOT use reversing entries, the journal entry to record payment of this note on April 1, 2018 will include a

Which of the following may NOT be accrued as a contingent liability?

On November 1, 2017, Best Corp.signed a three-month, zero-interest-bearing note for the purchase of $80,000 of inventory.The maturity value of the note was $81,200, based on the bank's discount rate of 6%.The adjusting entry prepared on December 31, 2017 in connection with this note will include a

The current (commonly used) accounting treatment for premiums and coupons requires that the costs should

Which of the following commitments would NOT require disclosure in the financial statement notes?

Which of the following statements is INCORRECT concerning warranties?

Under IFRS, a provision is

Under current IFRS requirements, a provision is recognized if

The numerator of the acid-test ratio consists of

Which of the following statements is INCORRECT regarding the recording of the related increase or accretion in the carrying amount of an asset retirement obligation (ARO) ?

What are the current International Financial Reporting Standards regarding customer loyalty programs (such as frequent flyer points) ?

Under ASPE, an asset retirement obligation should be recognized when